Monday

30th Nov 2020

Deutsche Bank fined on Russia money laundering

  • "We deeply regret the bank’s role in the issues cited," said DB’s chief administrative officer, Karl von Rohr. (Photo: Tony Webster)

Germany’s largest bank is to pay US and UK authorities over €500 million in fines for laundering billions of euros of shady Russian money.

Deutsche Bank (DB) agreed on the two penalties with the Department of Financial Services in New York (€397m) and the Financial Conduct Authority in London (€191m).

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  • Wall Street regulator cited DB's "short-term profiteering through improper conduct" (Photo: Dan Nguyen @ New York City)

The fines come on top of earlier penalties, worth billions, for mis-selling US mortgage securities, helping to rig an interbank lending rate called Libor and evading sanctions on Iran.

Maria T Vullo, from the New York authority, said on Monday that DB’s “Moscow, London, and New York offices … laundered $10 billion out of Russia” between 2011 and 2015 and that “today’s action sends a clear message that [we] … will not tolerate such conduct”.

DB’s chief administrative officer, Karl von Rohr, said: “We deeply regret the bank’s role in the issues cited.”

He promised to tighten up anti-money laundering controls and said DB had disciplined staff and closed part of its business in Moscow.

The affair casts a harsh light on the EU banking sector and poses questions on sanctions compliance.

DB’s “mirror trading scheme” saw Russian clients buy shares in Russian firms through its Moscow office. The same Russian clients, whose identities were hidden via offshore firms, then sold the shares through DB’s London branch. The transactions were cleared in DB’s New York office and the Russian clients were paid in US dollars.

The clients used at least 12 offshore entities, some of which were registered in EU member state Cyprus and some in the British Virgin Islands, a UK-linked tax haven in the Caribbean.

A typical transaction was worth about €2 million and made no sense from a financial point of view because clients often lost money on banking fees.

The New York authorities’ “compliance order”, published on Monday (30 January), said there was “clear” evidence that DB staff “knowingly and actively facilitated” the scheme.

It said the Russian clients did not make much effort to conceal the scam, with “several counter parties … registered at the same address” in Moscow.

It also said that one DB executive was paid $3.8 million in bribes, some of them via Cyprus, to look the other way.

“‘Fucking Obvious’ is the middle name of Russian corruption,” Roman Borisovich, a former DB investment banker told the New Yorker, a US magazine, last August when the Russian affair first came to light.

The DB mirror trades were not said to be linked to the EU and US sanctions on Russia that were imposed in 2014 over its invasion of Ukraine.

But they continued after the measures were imposed, undermining Western attempts to restrict Russia’s access to foreign capital in order to enforce a ceasefire deal.

The New York authorities said the mirror trades arose from a “corporate culture that allows for short-term profiteering through improper conduct”.

They said DB staff “did not forcefully question these suspicious trades, because they were earning commissions at a time when trading had dramatically slowed” after the 2008 financial crisis.

Analysis

Deutsche Bank crisis tests EU regulation

EU finance ministers insist that the bank's losses are not a systemic threat, but they revive the debate about the safeguards put in place after the financial crisis.

Deutsche Bank under fire in the US

Two separate reports by the US central bank and the Senate have criticised Deutsche Bank for having internal irregularities and for helping investment funds to avoid taxes.

Stolen Russian billions ended up in EU states

Illicit money flowing out of Russia ended up in almost every single EU state, an investigation has found, posing questions on the integrity of Europe’s banking systems.

Germany asks capitals to give a little in EU budget impasse

European Parliament negotiators are demanding €39bn in new funding for EU programmes such as Horizon research and Erasmus, in talks with the German EU presidency on the budget. Meanwhile, rule-of-law enforcement negotiations have only just begun.

Budget deal struck, with Hungary threat still hanging

Ultimately, the European Parliament managed to squeeze an extra €16bn in total - which will be financed with competition fines the EU Commission hands out over the next seven years, plus reallocations within the budget.

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